Page 44 - Insurance Times September 2020

Investment surplus would help in gradually reducing the sparing none. Subsequently, lockdown has created
government backstop. the need for a cover against an epidemic or
pandemic cover for non-property business
5. Government backstop interruption losses. Most of these losses are
The Working Group believes that for pandemic pool to absorbed by the policyholders as policy excludes
have an adequate purpose, it needs to cover at least business interruption losses arising out of pandemic.
4-5 crores MSME workers in frst phase and to Some enterprises may sustain during initial period;
accomplish that, the assurance from government to however, they are undergoing fnancial setbacks and
provide a backstop is necessary. It is pertinent to note some business which can’t sustain are forced to
that the backstop triggers only at the event of pandemic make tough decisions like reduce the staff strength
striking and the total loss payouts are higher than the or close their business altogether. The covers for
capacity garnered by the local insurance/reinsurance these losses are not provided by the market as it is
and international market. Globally all pandemic pool beyond the risk appetite of the insurance and re-
(including USA, France, Germany) proposals are heavily insurance market. If insurance companies are
hinged on their national government’s support in form required to cover such claims, such an action would
of similar backstop and are at different stages of create substantial solvency risks for the sector,
approval. The Working Group has proposed a signifcantly undermine the ability of insurers to pay
government backstop of appx. INR 75000 crores at the other types of claims, and potentially exacerbate
initial stages. the negative fnancial and economic impacts.

6. Coverage 7.1.2 Formation and administration of the Pool:
The pool shall provide coverage in a phased manner. The best way to address this is a pooling or sharing
As MSME and the unorganized sector are the worst mechanism with all the stakeholders. Pool will help
affected segments of society during the current COVID- to provide forward looking coverage for business
19 pandemic in India, frst phase of the pool shall cover during the pandemic event which is currently not
Income losses due to non-damage business interruption available in Indian market. Pandemic risk exists, and
resulting from a future pandemic event and subsequent it is not going anywhere. So, pooling of all resources
lockdown. Pandemic losses are covered under presently is optimum solution to create something from
available health insurance products, hence the nothing.
coverage for losses in health segment caused due to a GIC Re is recommended as the pool administrator
Pandemic event, beyond a threshold, may be covered as they have prior experience in handling similar
under the Pool in the second phase. The coverage under pools in Indian Market like Indian Terrorism Risk
the pool may be expanded to life insurance segment Insurance Pool (ITRIP) and Indian Nuclear Insurance
also in the later phases.
Pool (INIP). Their experience in managing Indian
pool will help to manage the pandemic Pool of the
RECOMMENDATIONS & NEXT STEPS country effciently at the lowest cost since setting
up a new entity for pool administration will involve
7.1 Recommendations higher overheads.
The current situation has illustrated the potential
harm that a pandemic can have on our people, 7.1.3. Pool Capacity:
An insurance pool can be formed to offer cover for
business, society and economy with the current
the epidemic and/or pandemic by the various stake
limitation of insurance coverage available to
provide protection. Hence Public-private holders with the expectation of capacity in the
pandemic pool with participation from insurers range of INR 1500-2000 crores from industry
through its own and external capacity. The rest of
and government support as a backstop can be a
best suitable option to prepare us better from the capacity in the form of government backstop,
similar future events. which triggers only in the event of a pandemic and
if the payouts to policy holders exceed the industry
7.1.1 Need of National Pandemic Risk Pool: and its arranged capacity.
COVID-19 is affecting business indiscriminately and

40 The Insurance Times, September 2020